Covering all bases
14 April 2020
deltaconX discusses its suite of regulatory services including its SFTR platform which is ready to go now, regardless of the regulation鈥檚 delay
Image: Shutterstock
Tell us about deltaconX and what your main focus is for 2020?
Our current focus is clearly the delivery and the go-live of our Securities Financing Transactions Regulation (SFTR) reporting service. Although the European Securities and Markets Authority (ESMA) has requested the competent authorities not to prioritise their supervisory actions and has clarified that no trade repositories (TR) will be approved prior to 13 April, we are still working on our delivery for the beginning of April. We have taken this decision because we have the capabilities to deliver our SFTR solution even in these difficult times due to the COVID-19 pandemic and because we do not want to delay all additional projects for 2020.
In addition to SFTR, we have planned various system enhancements for 2020 to support our clients to make regulatory reporting even easier and to improve the data quality. We plan to release an enhanced reconciliation management functionality and various features to further improve the exception management processes for our clients.
We plan to offer new connections to other reporting channels (TRs, approved reporting mechanism, approved publication arrangement, etc) and source systems and to enlarge the geographical scope by offering services for additional reporting regimes in North America and the Asia Pacific (APAC) region.
We are also monitoring closely what happens in different regions, that have still not introduced any transaction based regulatory regimes, but already announced that they will in the future, like South Africa, Indonesia and Argentina.
Tell us about your centralised deltaconX regulatory platform?
The deltaconX regulatory platform supports its clients to unify, standardise and automate reporting processes across various regulations by connecting multiple internal and external sources to one single platform and to transform the reported data into the different reporting formats. All reported data is pre-validated, and we offer a large variety of exception management, data enrichment and management and reconciliation management functionalities as well as further functionalities, like automated delegated reporting, unique transaction identifiers (UTI) generation and sharing, legal entity identifier repository, etc.
Currently we offer reporting solutions for EMIR, FinfraG/FMIA, MiFIR/MiFID II, REMIT and SFTR (see table) as well as a market surveillance module to comply with requirements from the market abuse regulation. We will enlarge the geographical scope during 2020 and 2021 to also cover reporting regimes in North America and the APAC region.
How does the COVID-19 pandemic influence your daily business?
As we at deltaconX are experts on cloud-based regulatory reporting we are well prepared and used to work remotely since our start in 2013.
The fact that our solution is hosted in a private cloud, gives us and our clients the flexibility to work remote and still comply with the regulatory requirements even in such an extreme situation like the current COVID-19 pandemic. Beside the platform itself, we also use virtual meetings and file sharing applications, so that although people are not physically meeting in the office, our service continues as 鈥渂usiness as usual鈥�.
We understand you have partnerships with global leading system vendors and reporting channels, how do these partnerships work?
2019 was an exciting year for deltaconX. We have been able to convince some of the most prestigious system vendors like Finastra, Murex and SimCorp that a collaboration will bring significant advantages to them and their underlying customers. Also, KRM22, which is running a global risk platform, has signed a partnership agreement with deltaconX.
We have different partnership models in place with those vendors:
White labelling
For Finastra and SimCorp we provide them with a white labelled reporting platform. This means that deltaconX will technically run the reporting engine, while it will be branded under our partners Corporate Identity. These collaborations have a number of benefits for the underlying clients:
鈥� Clients of these partners will benefit from standard integrations between the different source systems used and the reporting platform
鈥� deltaconX and its partner will monitor the regulations and will take care of all necessary changes that will occur in the future
鈥� Clients will benefit from the combined expertise in regulatory reporting from our partners and deltaconX
鈥� Budget certainty: All necessary changes or adaptations are included in the software-as-a-service-fee, so that clients have a clear view of the costs in order to comply with its reporting obligation
鈥� Total cost of ownership will be reduced significantly due to very reduced implication of internal staff and the centrally managed platform
鈥� The contractual relationship will improve customer efficiency, as the contractual relation is between the already used source system vendor and the client
For all partners the cooperation is rolled out with SFTR, and will be expanded to further supported regulations.
Carsten Kunkel, head of SimCorp鈥檚 global regulatory Centre of Excellence: 鈥淪imCorp鈥檚 SFTR cloud solution, launched in partnership with deltaconX, provides unparalleled transparency and control of the data that firms will need to report shortly. The partnership with deltaconX delivers many benefits to our clients, including the ability to more readily and flexibly load third party data, including triparty agent collateral reports. At the same time, the solution is one of an increasing number of managed services from SimCorp, where we take on greater responsibility for regulatory compliance and maintenance. This frees our clients from the burdensome task of keeping regulatory solutions in sync with regulatory change. As a result, SimCorp clients are now ahead of the curve, with a cloud-based managed service that is more intuitive and automated, and enables standardised integration with deltaconX鈥檚 regulatory platform. Ultimately, we are confident that our strong offering and the partnership with deltaconX, provides a cost-effective full-service solution that will enable our clients to get back to the business of alpha generation.鈥�
Connectivity agreements
With Murex and KRM22 we have connectivity agreements in place. The difference to a white labelled solution is that clients are signing an agreement with deltaconX directly. Beside this difference the clients still benefit from all the above-mentioned advantages.
What are the current trends that you are seeing in the regulatory space?
SFTR is certainly the hot topic for 2020 for those entities that are active in the securities financing area. It is a very complex regulation and especially the collateral reporting and the linking of collaterals to the reported trades is quite challenging. If market participants still have resources or are not impacted by SFTR, we recommend to actively work on the data quality for the existing reporting regimes like EMIR and MiFIR/MiFID II.
For those regulations that are targeting the activity in the financial markets, we see the trend to relieve the non-financial counterparties from the reporting obligation and to shift these obligations to the financial counterparties. The main reason for this shift is to increase the data quality and to introduce reporting standards. Under MiFIR/MiFID II the reporting standard is ISO 20022, for SFTR the reporting must be done in ISO 20022 XML as well.
For EMIR, ESMA has published a consultation about the new regulatory technical standards and implementing technical standards on 27 March, including the introduction of the ISO 20022 XML standard after the entry into force of EMIR REFIT. The authorities are of the opinion that the introduction of the ISO 20022 standard will significantly increase the quality of EMIR reporting which is, even after six years of the reporting regime being in place, still 鈥渘ot satisfactory鈥� for ESMA and the national competent authorities.
We at deltaconX support the opinion of the authorities that such standards will help to significantly increase the reporting quality, but we also realise that it is quite challenging, especially for small-and-medium-size financial institutions to implement such a standard. This is where we can support you, as implementing such standards is our expertise.
How do you view SFTR and the industry鈥檚 preparedness?
This very much depends on the activity the market participants are conducting and the type of market participants you are looking at.
As SFTR will be introduced in different waves (as it looks as of today in three rather than in four waves) the level of preparedness is certainly the highest for the credit institutions and investment firms falling into the first wave although it has been merged with the second wave now. However, we believe that the level of preparedness is also depending on the type and complexity of the SFTs the market participants are exercising.
Every type of transaction has its own complexity, meaning the more different transaction types you are actively trading the more complex the reporting will be. But also, the transaction types and the way they have to be reported is different depending on how these transactions are executed.
The more intermediaries are involved the more market participants are dependent on the preparedness and the business models of all these intermediaries like lending agents, brokers, central counterparties, triparty agents, etc, and their respective preparedness. We see that not all these intermediaries are already as far as we would have expected them to be less than one month before the original go live date.
Buy-side firms are, in our opinion, in a 鈥渨ait-and-see鈥� mode. Many of those firms have done the general analysis but are still uncertain on how they will operationally implement SFTR. Some are still of the opinion that delegating this reporting is the best way as those firms are generally trading with sell-side firms which will have the reporting obligation anyway. However, they should not forget the complexity of the compliance oversight process if they delegate to multiple counterparties. Others are currently in the implementation phase and hoped to benefit from the experience of the sell-side and consulting firms. Now that the delay between the first and the third wave will only be three months instead of originally six months, this might cause some shortage in the availability of experienced and well-educated consultants.
We suggest the wave one market participants not to slow down their projects due to the granted grace period, but they should continue their efforts to the best possible and should prepare themselves to be ready to report, once this is technically possible.
What concerns your clients the most about SFTR and how do you assist to overcome these concerns?
Reporting itself is extremely complex regarding the timing and content of different reports and under which conditions these rules need to be applied.
One of the biggest concerns is certainly the collateral reporting. You have different timings and ways to report and link collateral reports depending on whether the information is available at trade date or only at settlement date, or if you collateralise on net exposure basis or on trade basis. We are consulting our clients on how and when collateral reports need to be provided and how these reports are linked to the transactions.
The UTI generation and sharing is still one of the biggest concerns for the market participants. We offer a UTI generation functionality to our clients and also a functionality to share UTIs and transaction data with non-clients via email reports.
Reporting in ISO 20022 XML including the different action types is also a concern for many market participants. Our deltaconX regulatory platform can be accessed via different connectivity channels and file formats. The conversion into the ISO 20022 XML format is automatically handled by our platform. The deltaconX regulatory platform does not require the client to use action types, but those action types are derived by the platform itself.
In addition, many clients have a strong experience in regulatory reporting, and they know that data quality is one of the biggest concerns. Therefore, they are looking for a flexible solution which helps them to actively manage exceptions, to do some data mapping and to support them in their reconciliation processes. We at deltaconX are 100 percent focussed on regulatory reporting since 2013. Our main target is to make the reporting processes as simple and straight forward as possible for our clients, so we have a variety of features that help clients managing their regulatory reporting obligation in a cost, time and resources effective way.
After SFTR, which regulation do you feel will be the next big thing?
It is difficult to say which regulation will be the next big thing as not all the market participants are affected by each regulation in the same way.
For us at deltaconX we believe that SFTR will still keep us busy for quite some time as it is phased in and like in each regulation, we expect some changes to come up in the following months. We should also keep in mind that SFTR is a direct result from the Financial Stability Board recommendations, so similar reporting regimes will also be introduced in other parts of the world. As Europe has taken the leadership in developing a regulation for the SFT market, it will certainly be used as the benchmark for other countries, so we see ourselves very well positioned for the global role out of SFTR. This also fits in our general roadmap in which the geographical expansion is anyway foreseen.
In addition, the introduction of EMIR 3.0 including the ISO 20022 Standard will certainly have a strong impact on market participants and us as well.
Regulation table:
EMIR: European Market Infrastructure Regulation
FinfraG/FMIA: Financial Market Infrastructure Act (Switzerland)
MiFIR/MiFID II: Markets in Financial Instruments Regulation/Directive
REMIT: Regulation on Wholesale Energy Market Integrity and Transparency
SFTR: Securities Financing Transactions Regulation
Our current focus is clearly the delivery and the go-live of our Securities Financing Transactions Regulation (SFTR) reporting service. Although the European Securities and Markets Authority (ESMA) has requested the competent authorities not to prioritise their supervisory actions and has clarified that no trade repositories (TR) will be approved prior to 13 April, we are still working on our delivery for the beginning of April. We have taken this decision because we have the capabilities to deliver our SFTR solution even in these difficult times due to the COVID-19 pandemic and because we do not want to delay all additional projects for 2020.
In addition to SFTR, we have planned various system enhancements for 2020 to support our clients to make regulatory reporting even easier and to improve the data quality. We plan to release an enhanced reconciliation management functionality and various features to further improve the exception management processes for our clients.
We plan to offer new connections to other reporting channels (TRs, approved reporting mechanism, approved publication arrangement, etc) and source systems and to enlarge the geographical scope by offering services for additional reporting regimes in North America and the Asia Pacific (APAC) region.
We are also monitoring closely what happens in different regions, that have still not introduced any transaction based regulatory regimes, but already announced that they will in the future, like South Africa, Indonesia and Argentina.
Tell us about your centralised deltaconX regulatory platform?
The deltaconX regulatory platform supports its clients to unify, standardise and automate reporting processes across various regulations by connecting multiple internal and external sources to one single platform and to transform the reported data into the different reporting formats. All reported data is pre-validated, and we offer a large variety of exception management, data enrichment and management and reconciliation management functionalities as well as further functionalities, like automated delegated reporting, unique transaction identifiers (UTI) generation and sharing, legal entity identifier repository, etc.
Currently we offer reporting solutions for EMIR, FinfraG/FMIA, MiFIR/MiFID II, REMIT and SFTR (see table) as well as a market surveillance module to comply with requirements from the market abuse regulation. We will enlarge the geographical scope during 2020 and 2021 to also cover reporting regimes in North America and the APAC region.
How does the COVID-19 pandemic influence your daily business?
As we at deltaconX are experts on cloud-based regulatory reporting we are well prepared and used to work remotely since our start in 2013.
The fact that our solution is hosted in a private cloud, gives us and our clients the flexibility to work remote and still comply with the regulatory requirements even in such an extreme situation like the current COVID-19 pandemic. Beside the platform itself, we also use virtual meetings and file sharing applications, so that although people are not physically meeting in the office, our service continues as 鈥渂usiness as usual鈥�.
We understand you have partnerships with global leading system vendors and reporting channels, how do these partnerships work?
2019 was an exciting year for deltaconX. We have been able to convince some of the most prestigious system vendors like Finastra, Murex and SimCorp that a collaboration will bring significant advantages to them and their underlying customers. Also, KRM22, which is running a global risk platform, has signed a partnership agreement with deltaconX.
We have different partnership models in place with those vendors:
White labelling
For Finastra and SimCorp we provide them with a white labelled reporting platform. This means that deltaconX will technically run the reporting engine, while it will be branded under our partners Corporate Identity. These collaborations have a number of benefits for the underlying clients:
鈥� Clients of these partners will benefit from standard integrations between the different source systems used and the reporting platform
鈥� deltaconX and its partner will monitor the regulations and will take care of all necessary changes that will occur in the future
鈥� Clients will benefit from the combined expertise in regulatory reporting from our partners and deltaconX
鈥� Budget certainty: All necessary changes or adaptations are included in the software-as-a-service-fee, so that clients have a clear view of the costs in order to comply with its reporting obligation
鈥� Total cost of ownership will be reduced significantly due to very reduced implication of internal staff and the centrally managed platform
鈥� The contractual relationship will improve customer efficiency, as the contractual relation is between the already used source system vendor and the client
For all partners the cooperation is rolled out with SFTR, and will be expanded to further supported regulations.
Carsten Kunkel, head of SimCorp鈥檚 global regulatory Centre of Excellence: 鈥淪imCorp鈥檚 SFTR cloud solution, launched in partnership with deltaconX, provides unparalleled transparency and control of the data that firms will need to report shortly. The partnership with deltaconX delivers many benefits to our clients, including the ability to more readily and flexibly load third party data, including triparty agent collateral reports. At the same time, the solution is one of an increasing number of managed services from SimCorp, where we take on greater responsibility for regulatory compliance and maintenance. This frees our clients from the burdensome task of keeping regulatory solutions in sync with regulatory change. As a result, SimCorp clients are now ahead of the curve, with a cloud-based managed service that is more intuitive and automated, and enables standardised integration with deltaconX鈥檚 regulatory platform. Ultimately, we are confident that our strong offering and the partnership with deltaconX, provides a cost-effective full-service solution that will enable our clients to get back to the business of alpha generation.鈥�
Connectivity agreements
With Murex and KRM22 we have connectivity agreements in place. The difference to a white labelled solution is that clients are signing an agreement with deltaconX directly. Beside this difference the clients still benefit from all the above-mentioned advantages.
What are the current trends that you are seeing in the regulatory space?
SFTR is certainly the hot topic for 2020 for those entities that are active in the securities financing area. It is a very complex regulation and especially the collateral reporting and the linking of collaterals to the reported trades is quite challenging. If market participants still have resources or are not impacted by SFTR, we recommend to actively work on the data quality for the existing reporting regimes like EMIR and MiFIR/MiFID II.
For those regulations that are targeting the activity in the financial markets, we see the trend to relieve the non-financial counterparties from the reporting obligation and to shift these obligations to the financial counterparties. The main reason for this shift is to increase the data quality and to introduce reporting standards. Under MiFIR/MiFID II the reporting standard is ISO 20022, for SFTR the reporting must be done in ISO 20022 XML as well.
For EMIR, ESMA has published a consultation about the new regulatory technical standards and implementing technical standards on 27 March, including the introduction of the ISO 20022 XML standard after the entry into force of EMIR REFIT. The authorities are of the opinion that the introduction of the ISO 20022 standard will significantly increase the quality of EMIR reporting which is, even after six years of the reporting regime being in place, still 鈥渘ot satisfactory鈥� for ESMA and the national competent authorities.
We at deltaconX support the opinion of the authorities that such standards will help to significantly increase the reporting quality, but we also realise that it is quite challenging, especially for small-and-medium-size financial institutions to implement such a standard. This is where we can support you, as implementing such standards is our expertise.
How do you view SFTR and the industry鈥檚 preparedness?
This very much depends on the activity the market participants are conducting and the type of market participants you are looking at.
As SFTR will be introduced in different waves (as it looks as of today in three rather than in four waves) the level of preparedness is certainly the highest for the credit institutions and investment firms falling into the first wave although it has been merged with the second wave now. However, we believe that the level of preparedness is also depending on the type and complexity of the SFTs the market participants are exercising.
Every type of transaction has its own complexity, meaning the more different transaction types you are actively trading the more complex the reporting will be. But also, the transaction types and the way they have to be reported is different depending on how these transactions are executed.
The more intermediaries are involved the more market participants are dependent on the preparedness and the business models of all these intermediaries like lending agents, brokers, central counterparties, triparty agents, etc, and their respective preparedness. We see that not all these intermediaries are already as far as we would have expected them to be less than one month before the original go live date.
Buy-side firms are, in our opinion, in a 鈥渨ait-and-see鈥� mode. Many of those firms have done the general analysis but are still uncertain on how they will operationally implement SFTR. Some are still of the opinion that delegating this reporting is the best way as those firms are generally trading with sell-side firms which will have the reporting obligation anyway. However, they should not forget the complexity of the compliance oversight process if they delegate to multiple counterparties. Others are currently in the implementation phase and hoped to benefit from the experience of the sell-side and consulting firms. Now that the delay between the first and the third wave will only be three months instead of originally six months, this might cause some shortage in the availability of experienced and well-educated consultants.
We suggest the wave one market participants not to slow down their projects due to the granted grace period, but they should continue their efforts to the best possible and should prepare themselves to be ready to report, once this is technically possible.
What concerns your clients the most about SFTR and how do you assist to overcome these concerns?
Reporting itself is extremely complex regarding the timing and content of different reports and under which conditions these rules need to be applied.
One of the biggest concerns is certainly the collateral reporting. You have different timings and ways to report and link collateral reports depending on whether the information is available at trade date or only at settlement date, or if you collateralise on net exposure basis or on trade basis. We are consulting our clients on how and when collateral reports need to be provided and how these reports are linked to the transactions.
The UTI generation and sharing is still one of the biggest concerns for the market participants. We offer a UTI generation functionality to our clients and also a functionality to share UTIs and transaction data with non-clients via email reports.
Reporting in ISO 20022 XML including the different action types is also a concern for many market participants. Our deltaconX regulatory platform can be accessed via different connectivity channels and file formats. The conversion into the ISO 20022 XML format is automatically handled by our platform. The deltaconX regulatory platform does not require the client to use action types, but those action types are derived by the platform itself.
In addition, many clients have a strong experience in regulatory reporting, and they know that data quality is one of the biggest concerns. Therefore, they are looking for a flexible solution which helps them to actively manage exceptions, to do some data mapping and to support them in their reconciliation processes. We at deltaconX are 100 percent focussed on regulatory reporting since 2013. Our main target is to make the reporting processes as simple and straight forward as possible for our clients, so we have a variety of features that help clients managing their regulatory reporting obligation in a cost, time and resources effective way.
After SFTR, which regulation do you feel will be the next big thing?
It is difficult to say which regulation will be the next big thing as not all the market participants are affected by each regulation in the same way.
For us at deltaconX we believe that SFTR will still keep us busy for quite some time as it is phased in and like in each regulation, we expect some changes to come up in the following months. We should also keep in mind that SFTR is a direct result from the Financial Stability Board recommendations, so similar reporting regimes will also be introduced in other parts of the world. As Europe has taken the leadership in developing a regulation for the SFT market, it will certainly be used as the benchmark for other countries, so we see ourselves very well positioned for the global role out of SFTR. This also fits in our general roadmap in which the geographical expansion is anyway foreseen.
In addition, the introduction of EMIR 3.0 including the ISO 20022 Standard will certainly have a strong impact on market participants and us as well.
Regulation table:
EMIR: European Market Infrastructure Regulation
FinfraG/FMIA: Financial Market Infrastructure Act (Switzerland)
MiFIR/MiFID II: Markets in Financial Instruments Regulation/Directive
REMIT: Regulation on Wholesale Energy Market Integrity and Transparency
SFTR: Securities Financing Transactions Regulation
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